The long depression and Marx’s law – a reply to Pete Green

Pete Green has now taken up the cudgels in the debate that Jim Kincaid and I have begun over the causes of regular and recurrent crises in capitalist production and in particular the Great Recession.  He makes a welcome and considered critique of my views, as expressed in my book, The Long Depression and in recent discussions at the Historical Materialism conference in London earlier this month.  I think he raises some new and important points in his critique, which, as he says, will require further debate and research.

Like Pete, I cannot deal with all arguments in this short reply on my blog but I’ll do my best to take up some key ones, but it still makes this post long enough!

Pete starts by saying he is not going to dispute the data on the rate of profit that I have presented, mainly for the US, but also for other economies.  But apparently he “shares Jim Kincaid’s scepticism about reliance on US national income accounts as source for corporate profitability”.  Actually, I am not sure Jim is sceptical of the official data.  Indeed, he has said that I have used the data accurately and as Pete says, “there is no adequate alternative available for those engaged in empirical investigation”.

And that is what the bulk of my research is: engaging in empirical investigation to verify or otherwise particular theories or laws.  In my view, too many Marxist economists have ignored empirical work and concentrated on interpreting (and re-interpreting) Marx’s writings and ‘what he meant’, rather testing his laws of motion of capitalism to see if they best fit the facts.

Luckily, I am not alone in doing empirical investigations – Andrew Kliman has done prodigious analysis, Anwar Shaikh’s new book is a gold mine of empirical studies, G Carchedi has also tested Marx’s law with the evidence.  And there is a host of new young scholars internationally doing such work.  Carchedi and I will be publishing a book of these research projects next year that empirically support Marx’s law of profitability.

But Pete wants to “step back” from any debate over the stats and consider the “theoretical framework” of my book.  He does not think that Marx’s law of the tendency of the rate of profit to fall is “sufficient for an explanation of the cyclical fluctuations that have characterised capitalism”.  Why not?  Well, it seems that, while he does not deny “the logical coherence” of Marx’s law of profitability and its relevance to “whole period since the 1960s”, using the law to explain regular crises or “fluctuations” is “over-reductionist” and “two-dimensional”, especially in reference to the latest crises (ie the Great Recession?).

So Pete reckons that Marx’s law of profitability is logically coherent but irrelevant to an understanding of crises.  It’s ‘overreductionist’ (or maybe just reductionist?) to claim its relevance to crises.  There are more dimensions than two (presumably the tendency and the counter-tendency?), he says.

This does not seem the way to approach the relevance of Marx’s law to crises.  Pete says that the law is not “sufficient” to explain crises.  But does he think it “necessary”, which is not the same thing as sufficient?  If he does; how does it fit in?  You see, I think we must start with Marx’s approach, which was to abstract from reality the underlying essential (necessary) laws of capitalist motion and then add back concrete features of capitalism to reach the immediate.  In only that way can we identify the causes of crises under capitalism.  In that sense, Marx’s law can be seen as the underlying or ‘ultimate’ cause of recurrent crises, which can be triggered by ‘proximate’ events i.e. (oil price crisis, stock market bubble, real estate crash etc).  Then we have ‘sufficient’ causes.  For more on this, see my paper, Presentation to the Third seminar of the FI on the economic crisis

This approach thus makes it transparent that a financial crash or credit crisis is not the essence of crises in capitalism, but their surface manifestation.  Jim Kincaid has done a new post in which he outlines what Marx said about the 1847 crisis in Britain making the point that the falling rate of profit plays no role in Marx’s account”, considering only the financial speculation and credit crunches.  Jim claims that for Marx, “The fall in the rate of profit of these businesses is only a transmission mechanism.  What matters are the causes of bankruptcy and business collapse.

At this point, I am reminded of what Marx said a little later in 1858 during the first great international crisis of the 19th century: “What are the social circumstances reproducing, almost regularly, these seasons of general self-delusion, of over-speculation and fictitious credit?  If they were once traced out, we should arrive at a very plain alternative.  Either they may be controlled by society, or they are inherent in the present system of production.  In the first case, society may avert crises; in the second, so long as the system lasts, they must be borne with, like the natural changes of the seasons”.   Dispatches for the New York Tribune, Penguin p201.

As Marx puts it, ‘over-speculation and fictitious credit’ arise from regular crises in the capitalist system of production.  They cannot be eradicated by social action unless the mode of production is replaced.  It is not possible to separate crises in the financial sector from what is happening in the production sector.

Pete refers to the debate between Marxist economists on the cause of crises in the 1920s and 1930s, as described in Richard Day’s excellent book, The crisis and the crash.  As Pete says, the debate was between those who explained cyclical fluctuations as due to disproportionality between departments of production and those who reckoned it was due to the ‘limited consumption of the masses’, ie underconsumption.  As Pete says, “Marx’s tendency for the rate of profit to fall, as a function of a rising organic composition of capital, plays no role at all in these debates.”  But that does that mean the law is irrelevant?  It was no accident that the law was ignored.  Most leading Marxist revolutionaries had not read or seen Volume 3 of Capital where Marx’s “most important law of political economy” is expounded.  And if they had, they were guided away from Marx’s law as a cause of crises by the likes of Kautsky, Hilferding and Luxemburg.

One Marxist economist who had read and digested Volume 3 was Henryk Grossman.  As a result, he was able to present a coherent theory of capitalist crises based on the law, showing the connection between the tendency of the rate of profit to fall and the countertendencies; the relation between the rate of profit and the mass of profit; and thus the relation between profit and crises.  But his thesis, as Rick Kuhn says in his excellent biography of Grossman, was “an economic theory without a political home”.  Grossman also shows in his work, The law of accumulation being also a theory of crises, that those who followed an ‘anarchy of production’ theory of crises could not really provide a coherent argument for regular and recurring slumps or breakdowns inherent in capitalist production.  Indeed, just remove competition and allow monopoly to regulate and the anarchy can be controlled, suggested Hilferding or Kautsky.

Pete brings to our attention the work of Pavel Maksakovsky at that time.  As Pete says, he provides us with the most sophisticated version of the anarchy of production theory of crises.  As usual, Maksakovsky refers to Marx’s law of profitability, but only to dismiss it as irrelevant to the cycles of boom and slump and instead, like those in debate of the 1920s, focuses on Volume Two of Capital with its reproduction schema.  Maksakovksy outlines his theory succinctly in pp136-9 of his book.  This is a disproportion theory but with the addition of trying to show that the disproportion between the sectors of means of production gets ‘periodically detached from consumption’.  Interestingly, Maksakovsky, correctly in my view, dismisses the idea that excessive credit and financial market busts are the cause of crises (p139), just as Marx did in 1858, but now revived by Jim.  They are only at the ‘superstructural level’ of capitalist society and can never eliminate the cyclical developments caused by the ‘anarchy of production’.  This is worth remembering in the light of the arguments now being presented by many modern Marxist economists that finance is the real cause of crises now and for the Great Recession (see below).

Does the anarchy of production or disproportion of sectors of reproduction hold up to scrutiny as an alternate theory of crises?  I don’t think so.  Grossman demolishes it in his book and in a little known essay on Marx’s reproduction schema (recently edited by Rick Kuhn).  Grossman shows that Marx’s schema do not show a “widening and deepening contradiction” (Maksakovsky) between production and consumption under capitalism and so cannot be the Marxist explanation of recurrent crises.  By assuming in the reproduction schema, accumulation and exchange between the sectors take place at the level of labour values, Maksakovsky makes the same mistake as Luxemburg and others and so finds ‘disproportion’.  But Marx’s reproduction schema are at the level of prices of production after the process of competition.  Rates of profit are averaged.  At that level, there is no inherent disproportion from the reproduction schema.

To deny disproportion as the cause of capitalist crises is not to support Say’s law (or ‘fallacy’, to be more exact) that ‘supply creates its own demand’ –as Pete suggests that I do.  Marx was fierce in his dismissal of Say’s nonsense.  The very process of exchange on the market creates the ‘possibility of crisis’.  But that does not explain the periodic and recurrent crises in capitalist production and investment.

Pete does not like the “clever” flow chart in my book that shows the different possible theories of crisis.  He says I want the readers to follow me down to Marx’s law of profitability, but he has three objections to that path.  Pete admits that in the circuit of capital “production is primary” but then goes onto say that production and circulation are in a “contradictory unity” in capitalism.  So is production not ‘primary’ after all?  Indeed, he refers us to the thesis of David Harvey who argues that capitalism has various ‘bottleneck points’ in the circuit of capital and crises can come from any one of them, not just or even mainly in the ‘primary’ production of surplus value and the accumulation of capital, but also in the ‘secondary’ circulation of capital through credit finance, households and the role of government.  So Pete says we need to have a theory of crisis that “embraces the whole circuit of capital” not just in production.

That’s fine but does this mean that the ‘bottlenecks’ in the circulation and distribution of capital are on the same level of causality as breakdowns in the ‘primary’ production process?  The Marxist answer, in my opinion, is no.  As I said before, in my view, and I think in Marx’s, circulation and distribution are at a lower plane of causal abstraction, or if you like closer to the proximate than the ultimate or underlying causes.  A collapse in the stock market or in real estate prices will not lead to a collapse in production unless there are already serious difficulties in the latter.  There have been many stock market collapses without a slump in production and employment (1987), but not vice versa.

Indeed, I agree with what Jim says summing up his post on the 1847 crisis mentioned above that The rate of profit and the forces which determine it should remain central in our analysis.  Marx’s own account of the 1847 crisis would surely have been strengthened by attention to profitability and its conflicting trends. We need to trace the many ways in which the law of value asserts itself – often in displaced and distorted forms.  But also recognise, and give due weight to, the role of contingent factors in any crisis we examine.”

Pete also wants to drag in the Keynesian “lack of effective demand” as one of the multi-dimensional causes of crises.  I have argued in many places that this ‘cause’ is no such thing.  Pete agrees that aggregate demand is endogenous to investment and profit; “Keynes himself would have agreed”.  Yes, but for the wrong reasons.  The Keynesian-Kalecki thesis puts ‘effective demand’ i.e. investment demand, as the causal factor in the movement of profits.  But Marxist economics says profits call the tune, not investment.  I and other Marxist scholars have shown that the empirical evidence for the Keynesian ‘multiplier’ (a fall in spending leads to a slump) is very weak compared to the Marxist multiplier (a fall in profits leads to a slump).

Pete says I should not ‘conflate’ the underconsumption thesis with the overproduction thesis as the cause of crises.  But then says that the “problem is a relative lack of productive consumption”.  We may be bandying with words here, but that sounds like an underconsumption thesis to me.  I presume this to refer to an excess of investment goods produced over the capitalists’ demand for them.  But crises do not happen because of a lack of “productive consumption”, but because of insufficient profits brought on by falling profitability over time.  And this can be proved empirically.

Andrew Kliman shows in his book, The failure of capitalist production (Chapter 8) that investment growth is always outstripping consumption but it does not lead to recurrent crises, as Maksakovsky ansd Sweezy argued.  The cyclical crisis of boom and slump does not flow from excessive investment over consumption but from insufficient profit from investment.  I await an empirical justification of the Maksakovksy thesis.

Pete says the proponents of Marx’s law of profitability as the underlying and ultimate causes of recurrent and regular crises are neglecting the ‘multi-dimensional’ and ‘complex’ nature of capitalism.  I ignore the uneven and combined development of the world economy as expressed in the global imbalances so “astutely” identified by Keynesian economic commentator, Martin Wolf (or for that matter, I could add Yanis Varoufakis in his book, The Global Minatour).  I also ignore the counteracting factors of globalisation in driving up the rate of profit.  I also ignore the role of finance and growth of financial profits in total corporate profits.

The more I go down these points by Pete, the more I feel that a series of straw men have been erected for my views to be knocked down by him.  These layers of ‘multi-dimension’ have not been ignored by me.  The counteracting factors explain the up and down waves of the profitability cycle in capitalism.  In both my books, I have spent some time looking at these long waves of profitability.  And I discuss the impact of uneven and combine development of capital in the context of the euro crisis in my book.

Pete says that “Unlike some critics,  I am not rejecting the relevance of this or the equally significant role of counter-tendencies raising profitability over the long-term. Indeed I would endorse to a degree Michael’s emphasis on longer waves in profitability but link them more closely to Kondratiev waves”.  But I have done just that in both books – trying to relate these waves to Kondratiev’s!

Pete is right to say that Marx’s law of profitability appears to have different cycles than the so-called ‘business’ or Juglar cycles of boom and slump.  I could not agree more.  In my first book, The Great Recession, I spent much time trying to analyse the connections between the various cycles in ‘capital in motion’ and try to link them together.  I did the same in The Long Depression in a whole chapter.

Pete says that “What can be shown in my view is that when the underlying rate of profit is falling, the business cycle fluctuations are more severe as is evident from the late 1960s to the early 1980s, and when the underlying rate is rising, the amplitude or the severity of recessions is reduced as in the 1990s and early 2000s.”  That almost word for word what I have said in the past.

Pete is keen to tell us that what is new is the “unprecedented rise in the share of financial profits in total corporate profits”. Again this is dealt with in both my books.  Indeed, I try to integrate this new development into an analysis of unproductive investment and fictitious capital as one of the new ‘counteracting factors’ to the law as such.  I even try to measure its impact (see my paper, Debt matters).

Pete finishes by wanting to defend or promote again the Keynesian idea of “a lack of effective demand” as the cause of crises.  He rejects my claim that the Keynesian position is a tautology (‘it rains because it rains’) of a slump not a cause. In retort, he suggests that Marx’s law of profitability is as remote a cause of crises as saying storms and hurricanes are caused by global warming; only worse, the law of profitability as a proven cause is more questionable than man-made global warming.  Pete is not a global warming sceptic but he is falling profitability one.

Actually, his analogy has some merit.  Global warming is an underlying cause of increased storms, floods and extreme weather.  The science of correlations, causation and forecasts strongly supports this.  Similarly, I and others argue that capitalist crises have an underlying cause in the inability of capitalists to stop the overall rate of profit on capital falling as they accumulate and try to increase profits.  This dialectical contradiction also has increasing empirical backing with correlations, causations and forecasts.  By the way, Marx used the analogy of the law of gravity and the movement of objects to place his law of profitability in crises.

I’m afraid the thesis of Maksakovsky has not changed my view that all other theories of crises in capitalism: underconsumption, overproduction, disproportion, bottlenecks in circulation, global imbalances, financial instability, are either wrong or at a lower plane of abstraction, so that, on their own, they do not explain crises.  As Alan Freeman says, Marx’s law remains “the only credible competitor left in the contest to explain what is going wrong with capitalism”.

21 Responses to “The long depression and Marx’s law – a reply to Pete Green”

  1. Virgens Kamikazes Says:

    Pete Green’s “multi-dimensional” argument would make some sense if he was debating in the academic field of History, since the premise that legitimises History as a science is precisely that every historical event is, by definition, unique and irreproductible. If he wants to analyse the crisis of 2008 through the historical method, I’ll welcome his efforts.

    But his argumentation doesn’t make sense in the academic field of economic theory. Economic theory a model that humans can use to predict certain outcomes. It is an instrument.

    This “lack of effective demand”/”finance is the main cause” argumentation seems to attract certain economists from First World countries – including super star David Harvey. I can see the reason: if you go from the principle that finance is the problem, not production, then you can create a rationale where the situation is, ultimately, under control of the imperialist countries (the problem could be solved by electing some honest center-left politicians).

    The underconsumption argument complements the rationale, stating that not only the crisis are under ultimate control of the imperialist countries, but also that, if those countries really come to tame it, their working classes will automatically get a better life, the ultimate middle class dream of birth-diploma-marriage-children-retirement-grandchildren-death. Talk about whistling in the dark.

  2. Ollie Says:

    Surely an economic crisis is not an example of “capitalism going wrong” but of capitalism behaving exactly as Marx stated it would; boom, crisis, slump, up- turn. If Marx’s law of profitable can explain the trade cycle better than its competitors it does not follow that the law means capitalism’s collapse or for commodity production and exchange to come to a grinding halt.
    Conscious political action is still required to replace capitalism with socialism.

  3. Boffy Says:

    “This approach thus makes it transparent that a financial crash or credit crisis is not the essence of crises in capitalism, but their surface manifestation.”

    But, Marx says in Capital I that it is necessary to distinguish “purely financial crises”, which emanate from the financial markets, from economic crises, and in Capital III, Marx analyses the financial crash of 1847, when the mass and rate of profit was at historically high levels, and so according to your theory should have been very far from suffering an underlying economic crisis.

    In fact, Marx describes how this financial crisis originating in the financial markets, and sparked by a credit crunch resulting from the 1844 Bank Act, then caused a 37% drop in UK output, but that once the Bank Act was suspended, and the credit crunch ended, the boom continued apace only interrupted by a further financial crisis ten years later in 1857 – sparked according to Marx’s analysis by the end of the Crimean War, which meant that Europe reduced its imports from the US, which caused US banks to go bust.

    The boom ended in 1865 approximately, having started in 1843, and the proximate cause of the crisis in 1865, was that the US Civil War had cut off cotton supplies to English textile producers.

  4. Simon H Says:

    We’re talking about underlying reasons for crisis here Boffy, not last straw events. I wonder if you think every crisis only occurs because of some specific event?

  5. Boffy Says:

    Rate of Profit and Crises

    “As Pete says, “Marx’s tendency for the rate of profit to fall, as a function of a rising organic composition of capital, plays no role at all in these debates.”  But that does that mean the law is irrelevant?  It was no accident that the law was ignored.  Most leading Marxist revolutionaries had not read or seen Volume 3 of Capital where Marx’s “most important law of political economy” is expounded.  And if they had, they were guided away from Marx’s law as a cause of crises by the likes of Kautsky, Hilferding and Luxemburg.”

    But, why was it the most important law of political economy? It was so, not because Marx proposed it as the basis of crises, but because it explains why commodities exchange at prices of production rather than at exchange values! It resolves the fundamental contradiction that Smith Ricardo and their followers had been unable to explain, and it explains the allocation and distribution of capital!

    Marx sets out his theory of crises in Chapter 17 of Theories of Surplus Value, and nowhere in the near fifty pages of that detailed analysis does he even once mention the long run tendency for the rate of profit to fall! If it was his explanation, you might have thought he would mention it, and his reason for ignoring it, cannot be put down to him being guided away from it, can it? Where Marx does refer to a fall in the rate of profit, in relation to crises, in Chapter 17, it is not a fall caused by the long run tendency, but a profit fall caused by a profits squeeze, usually arising during a period not of falling profits, but of boom, of rising masses and rates of profit.

    That is also consistent with what he says in Chapter 6 and 15 of Capital III. In Chapter 6, for example, he writes of conditions of boom that cause a sharp rise in material prices, which cannot then be passed on to final product prices – often also associated with a period of boom when consumption levels are high, and the elasticity of demand for these final products is high.

    “This shows again how a rise in the price of raw material can curtail or arrest the entire process of reproduction if the price realised by the sale of the commodities should not suffice to replace all the elements of these commodities. Or, it may make it impossible to continue the process on the scale required by its technical basis, so that only a part of the machinery will remain in operation, or all the machinery will work for only a fraction of the usual time.” (Chapter 6)

    And this is the same argument that Marx makes in Chapter 15, of crises caused not by the long run tendency for the rate of profit to fall, but of a short run profits squeeze caused by rising input costs. In particular, in Chapter 15, Marx describes a situation where labour-power is in relative short supply, due to such a boom, which causes wages to rise, reduce the rate of surplus value, and thereby cause a squeeze on profits.

    “Given the necessary means of production, i.e. , a sufficient accumulation of capital, the creation of surplus-value is only limited by the labouring population if the rate of surplus-value, i.e. , the intensity of exploitation, is given; and no other limit but the intensity of exploitation if the labouring population is given.” (Chapter 15)

    It is these conditions of boom and high profits that causes the relative shortage of labour-power, a rise in wages, and squeeze on the rate of surplus value and profit. The important point here, as Marx notes as against Ricardo and Malthus and others, is that the long run tendency for the rate of profit to fall, is dependent on a rise in the rate of surplus value, whereas, in these conditions the opposite occurs, i.e. a fall in the rate of surplus value, as wages are pushed higher. As he continues,

    “As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”

    Note the distinction that there is a steep and sudden fall in the rate of profit consequent upon this fall in the rate of surplus value, as opposed to the very long period by which the law of the tendency for the rate of profit to fall requires to even be visible according to Marx.

    Marx also refers to such conditions in agriculture between 1849 and 1859, which pushed up agricultural wages and squeezed agricultural profits. The law of the rate of profit to fall is then on Marx’s basis not a cause of crises, but a means of resolving them! Faced with a relative shortage of labour-power, pushing up wages and reducing the rate of surplus value and profit, capital responds by engaging in a new bout of technological innovation, to produce new labour saving technologies, which creates a relative surplus population, in line with the law he set out at the start that the production of surplus value, and profit depends upon there being an adequate supply of labour power to exploit, given the level of technology.

    The new technological developments then create the relative surplus population, wages fall, the rate of surplus value and profit rises, as the squeeze on profits is ended. Similar technological developments mean that raw materials can be extracted more cheaply, used more effectively, for example, better steam engines use less coal, and the value of existing fixed capital suffers a large moral depreciation pushing the rate of profit higher. All of these factors act to raise the annual rate of profit, but simultaneously act to create the conditions for a lower rate of profit/profit margin. In other words, the value of fixed capital advanced falls due to the moral depreciation, and the turnover of capital rises, so that not only do wages fall, but the amount of variable capital advanced falls too, and for the same reason, i.e. higher levels of productivity, the advanced circulating constant capital also falls.

    But, in terms of the laid out capital, which is what the rate of profit/profit margin is based upon, the value of circulating constant capital as a proportion of output value, rises sharply, because of higher productivity, i.e. more material processed by a given amount of labour. So, the rate of profit/profit margin falls, even as the mass of profit rises, and indeed as Marx says the fall in the rate of profit is inseparable from this rise in the mass of profit arising from the increase in the mass of capital.

    The conditions required for the falling rate of profit, i.e. the introduction of new technologies, causing higher levels of social productivity, and rates of surplus value arise as the basis for resolving crises, not as the cause of them. It is only when this situation of the introduction of new technologies arises, required because the existing supply of labour-power has been relatively exhausted, that the conditions for the law of falling profits are created, i.e. rising social productivity, and a change in the technical composition of capital resulting in a change in the organic composition. Incidentally, Marx is also clear on this point, the organic composition of capital is a corollary of the technical composition, and NOT of the value composition. A change in the value composition of capital implies no change in social productivity (or if it implies anything it implies a reduction in productivity not a rise), and is therefore, irrelevant as far as the law of falling profits is concerned, though for the reasons set out above, and in Chapter 6, it may lead to a profits squeeze.
    The conditions where labour-power tends to become in relative short supply is during periods of extensive rather than intensive accumulation of capital. In other words, more of the same old technology is rolled out, and under such conditions, as Marx says, there is no basis for the law of falling profits to operate.

    “Growth of capital, hence accumulation of capital, does not imply a fall in the rate of profit, unless it is accompanied by the aforementioned changes in the proportion of the organic constituents of capital. Now it so happens that in spite of the constant daily revolutions in the mode of production, now this and now that larger or smaller portion of the total capital continues to accumulate for certain periods on the basis of a given average proportion of those constituents, so that there is no organic change with its growth, and consequently no cause for a fall in the rate of profit. This constant expansion of capital, hence also an expansion of production, on the basis of the old method of production which goes quietly on while new methods are already being introduced at its side, is another reason, why the rate of profit does not decline as much as the total capital of society grows.” (Chapter 15)

    The rate of profit during such periods does not fall due the law of falling profits, therefore, but as this extensive accumulation (no significant rise in productivity) implies more and more labour-power being employed, as capital expands, it leads to rising wages and a squeeze on the rate of surplus value and profit. A period of intensive accumulation, sharply rising productivity is then introduced as the remedy, and thereby creates the conditions for the long term tendency for the rate of profit to fall.

  6. Boffy Says:

    “The general, abstract possibility of crisis denotes no more than the most abstract form of crisis, without content, without a compelling motivating factor.”

    But, once we move beyond the abstract form of crisis,

    “… the further development of the potential crisis has to be traced—the real crisis can only be educed from the real movement of capitalist production, competition and credit—in so far as crisis arises out of the special aspects of capital which are peculiar to it as capital, and not merely comprised in its existence as commodity and money.”

    (Theories of Surplus Value, Chapter 17)

  7. sartesian Says:

    Boffy: “But, why was it the most important law of political economy? It was so, not because Marx proposed it as the basis of crises, but because it explains why commodities exchange at prices of production rather than at exchange values! It resolves the fundamental contradiction that Smith Ricardo and their followers had been unable to explain, and it explains the allocation and distribution of capital!”

    Uhh…….no. As Marx writes in the same Chapter 15 that Boffy loves to cherry-pick:

    “…a fall in this rate slows down the formation of new independent capitals and thus appears as a threat to the development of the capitalist production process; it promostes overproduction, speculation, and crises, and leads to the existence of excess capital alongside a surplus population. Thus economists like Ricardo, who take the capitalist mode of production as an absolute feel here that this mode of production creates a barrier for itself and seek the source of this barrier not in production but rather in nature (in the theory of rent). The important hing in their horror at the falling rate of profit is the feeling that the capitalist mode of production comes up against a barrier to the development of the productive forces which has nothing to do with the production of wealth as such; but this characteristic barrier in fact testifies to the restrictiveness and the solely historical and transitory character of the capitalist mode of production; it bears witness that this is not an absolute mode of production for the production of wealth but actually comes into conflict at a certain stage with the latter’s further development.”

    Get it? The law of this tendency defines the intrinsic conflicts to capital accumulation, and defines its as a transitory, historically limited organization of social labor. From that it is clear that the tendency of the ROP to decline is the “ultimate” expression of the workings of the law of value, and that the law of value itself is but the product of the social organization of labor, of class relations.

    The tendency of the rate of profit to decline is nothing other than the “meta” expression of the conflict between the labor process and the valorization process at the core, heart, basis, of capital. Marx makes this explicit in the very next section of Chapter 15– “The conflict between the extension of production and valorization.”

    Boffy: ” The law of the rate of profit to fall is then on Marx’s basis not a cause of crises, but a means of resolving them!”

    Come on, do us a favor will you?.. Countervailing tendencies and all that, remember? Depression, contraction, crisis itself is a means for resolving (temporarily) the conflicts of capitalism.

    Boffy: “Incidentally, Marx is also clear on this point, the organic composition of capital is a corollary of the technical composition, and NOT of the value composition.”

    Marx is clear, but Boffy isn’t. From Volume 1:

    “The composition of capital is to be understood in a two-fold sense. On the side of value, it is determined by the proportion in which it is divided into constant capital or value of the means of production, and variable capital or value of labour power, the sum total of wages. On the side of material, as it functions in the process of production, all capital is divided into means of production and living labour power. This latter composition is determined by the relation between the mass of the means of production employed, on the one hand, and the mass of labour necessary for their employment on the other. I call the former the value-composition, the latter the technical composition of capital.

    Between the two there is a strict correlation. To express this, I call the value composition of capital, in so far as it is determined by its technical composition and mirrors the changes of the latter, the organic composition of capital. Wherever I refer to the composition of capital, without further qualification, its organic composition is always understood ”

    Get it? Between the two there is a strict correlation, and Marx calls the value composition of capital, in so far as its determined by the technical composition– in so far as it strictly correlates with the technical composition, the organic composition of capital. The organic composition is that correlation, or synthesis of technical and value manifestations of capital.

    But that’s where and what cherry-picking gets you– the pits.

  8. gerrard6winstanley Says:

    @Boffy: I’m not sure it’s correct to refer to it as a ‘long-run’ law for the same reasons we wouldn’t refer to gravity as a long-run law. Marx writes, sure:

    ‘We have thus seen in a general way that the same influences which produce a tendency in the general rate of profit to fall, also call forth counter-effects, which hamper, retard, and partly paralyse this fall. The latter do not do away with the law, but impair its effect. Otherwise, it would not be the fall of the general rate of profit, but rather its relative slowness, that would be incomprehensible. Thus, the law acts only as a tendency. And it is only under certain circumstances and only after long periods that its effects become strikingly pronounced.’

    But as far as I can see that’s just like saying, for a bird in flight say, that gravity only asserts itself visibly under certain conditions (exhaustion, the intervention of some Tory’s bullet) and after long periods in which it has been counter-acted by flapping wings. The bullet and the exhaustion are the immediate circumstances which make the effect of gravity highly visible, but it’s impossible to understand why the bird was flapping as it was, and the trajectory it was taking before the immediate crisis, without recognising the force of gravity as always somewhere in the mix of effects on its movement.

    As far as I can see, it’s a useful law because it defines the environment in which capital must operate, and shows how the behaviour of capital that ends up creating visible crises is a rational response to the pressure on profits, a feature of the profit-system rather than a number of unrelated accidents. There is no stability because capitalists are driven to such a variety of behaviours in order to counteract the underlying law from asserting itself visibly in their realised profit-margins – flapping their wings and exhausting themselves to the point of crisis in various ways.

    • Boffy Says:

      Gerard,

      The quote you give from Marx does describe the fact that it is a long-run effect, whether you call it a long-run law or a long-run tendency. And for the reasons that Marx sets out that long run tendency cannot be the explanation of crises of overproduction.

      In Capital III, Chapter 15, and in Theories of Surplus Value Chapter 17, Marx criticises Ricardo’s confused view of the law of falling profits. Ricardo, like Malthus and others saw the law of falling profits as essentially being caused by factors that necessarily squeezed the rate of surplus value. Primarily for Ricardo, following Malthus, it was that productivity rises faster in industry than agriculture so the demand for agricultural products rises faster than the rise in agricultural production, particularly for food, and so agricultural prices rise faster than manufactured goods prices.

      In particular, for Ricardo, this means that even if the other elements of wages fall in price, as industrial productivity rises, food prices rise to a level where wages must rise, causing a squeeze on profits. It is this, which Marx says causes Ricardo to wrongly see the law of the tendency of the rate of profit to fall as representing a necessary ultimate catastrophic collapse of the system. Marx criticises Ricardo for seeing the law of falling profits, therefore, as being the equivalent of a natural law.

      “Thus economists like Ricardo, who take the capitalist mode of production as an absolute feel here that this mode of production creates a barrier for itself and seek the source of this barrier not in production but rather in nature (in the theory of rent).” (Chapter 15)

      But, as Marx sets out, Ricardo was wrong, no such absolute barrier exists. The tendency does not lead to this fall in the rate of surplus value, which creates a necessity for a permanent crisis of capitalism.

      “We shall see later [K. Marx, Theorien über den Mehrwert. K. Marx/F. Engels, Werke, Band 26, Teil 2,. S. 435-66, 541- 43. — Ed] to what deliberate falsifications some people resort in their calculations to spirit away the possibility of an increase in the mass of profit simultaneous with a decrease in the rate of profit.

      We have shown how the same causes that bring about a tendency for the general rate of profit to fall necessitate an accelerated accumulation of capital and, consequently, an increase in the absolute magnitude, or total mass, of the surplus-labour (surplus-value, profit) appropriated by it.” (Capital III, Chapter 13)

      Or as Marx says, in Theories of Surplus Value,

      “A distinction must he made here. When Adam Smith explains the fall in the rate of profit from an over-abundance of capital, an accumulation of capital, he is speaking of a permanent effect and this is wrong. As against this, the transitory over-abundance of capital, over-production and crises are something different. Permanent crises do not exist.”

      Where Ricardo and others get confused, Marx says, and this is the case with a lot of current discussion, is that they conflate a squeeze on profits caused by the factors that Ricardo cites here, such as rising wages, whilst others referred to higher rents, or interest rates, with the law of falling profits, whilst in fact the two things are polar opposites. The law of falling profits relies on a rising social productivity that depends upon a rising organic composition of capital.

      As I set out above, Marx is quite clear about the difference between a rise in the organic composition of capital, which is a consequence of a rise in the technical composition of capital, and a rise purely in the value composition of capital.

      In Capital I, Marx writes,

      “The composition of capital is to be understood in a two-fold sense. On the side of value, it is determined by the proportion in which it is divided into constant capital or value of the means of production, and variable capital or value of labour power, the sum total of wages. On the side of material, as it functions in the process of production, all capital is divided into means of production and living labour power. This latter composition is determined by the relation between the mass of the means of production employed, on the one hand, and the mass of labour necessary for their employment on the other. I call the former the value-composition, the latter the technical composition of capital.

      Between the two there is a strict correlation. To express this, I call the value composition of capital, in so far as it is determined by its technical composition and mirrors the changes of the latter, the organic composition of capital. Wherever I refer to the composition of capital, without further qualification, its organic composition is always understood ”

      In other words, the value composition of capital may rise, even if the mass of constant capital does not change relative to the mass of labour employed. All that is required for that to happen is that the price of raw materials rises, and as Marx sets out in Chapter 6, that can be a consequence either of the value of materials rising (falling productivity) or of the demand for materials rising faster than the supply simply causing a rise in their market price. But, Marx is clear to demarcate such a change in the value composition from a change in the organic composition. The change in the organic composition arises not because of this change in the value or price of materials, but as a consequence of a rise in social productivity. That rise in social productivity means that a greater mass of materials is processed by the same quantity of labour. The result is that, even if the value composition of capital falls (because the materials fall in value) the organic composition of capital rises, because the rise in the mass of materials processed is greater than the fall in the value of the materials. In other words, if previously 10 workers paid wages of £100 processed 100 kilos of cotton with a value of £10 per kilo (£1,000) the organic composition would be 10:1, but if the same 10 workers now process 300 kilos of cotton with a value of £5 per kilo (£1,500), the organic composition rises to 15:1.

      It is this that lies behind the tendency for the rate of profit/profit margin to fall. But, as Marx sets out, it is also what lies behind a rise in the annual average rate of profit, because it leads to a rise in the rate of turnover of capital. For example, here, we might assume that as 3 times as much cotton is processed in the same time, the working period, falls to a third its previous length.

      It was to avoid this confusion, that Marx says he analysed the law of falling profits before looking at the distribution of that profit into rent, interest and profit of enterprise. In other words, he wanted to avoid the confusion of the falling rate of profit with the squeeze on profits by other forms of revenue.

      “We intentionally present this law before going on to the division of profit into different independent categories. The fact that this analysis is made independently of the division of profit into different parts, which fall to the share of different categories of people, shows from the outset that this law is, in its entirety, independent of this division, and just as independent of the mutual relations of the resultant categories of profit. The profit to which we are here referring is but another name for surplus-value itself, which is presented only in its relation to total capital rather than to variable capital, from which it arises. The drop in the rate of profit, therefore, expresses the falling relation of surplus-value to advanced total capital, and is for this reason independent of any division whatsoever of this surplus-value among the various categories.” (Capital III, Chapter 13)

      What Ricardo identified was the squeeze on profits that arises during a period of boom, when the demand for labour-power is high, pushing wages higher, and thereby squeezing profits. In Chapter 17 of Theories of Surplus Value, Marx specifically criticises Ricardo for making this error in relation to a spike in raw material prices. In other words, Ricardo discusses the situation in relation to a rise in the value composition of capital rather than a rise in the organic composition.

      “ (A crisis can arise: 1, in the course of the reconversion [of money] into productive capital; 2.  through changes in the value of the elements of productive capital, particularly of raw material, for example when there is a decrease in the quantity of cotton harvested.  Its value will thus rise.  We are not as yet concerned with prices here but with values.)”

      Marx later in this section, shows that a high demand for materials due to a boom also cause the market price of these inputs to rise, as supply fails to match demand at the market value/price of production, and this has the same effect as the value of the inputs rising due to falling productivity.

      “The value of the raw material therefore rises; its volume decreases, in other words the proportions in which the money has to be reconverted into the various component parts of capital in order to continue production on the former scale, are upset.”

      Which is the OPPOSITE of the condition of rising productivity and a rising technical, and so organic composition of capital, whereby MORE material is processed by the same mass of labour, and whereby the total value of that material processed rises, even as rising productivity causes the unit prices of that raw material to fall, as one of the countervailing forces.

      “More must be expended on raw material, less remains for labour, and it is not possible to absorb the same quantity of labour as before.  Firstly this is physically impossible, because of the deficiency in raw material.  Secondly, it is impossible because a greater portion of the value of the product has to be converted into raw material, thus leaving less for conversion into variable capital.  Reproduction cannot be repeated on the same scale.  A part of fixed capital stands idle and a part of the workers is thrown out on the streets.  The rate of profit falls because the value of constant capital has risen as against that of variable capital and less variable capital is employed.”

      Again, this is the OPPOSITE of the LTPRF where it is rising productivity, which causes the value of constant capital to fall, and so the value composition of capital to fall (unless the value of labour-power falls by a larger amount for the same reason), but where the technical composition of capital rises, as more material is processed per unit of labour, and so where the organic composition of capital rises. Here it is falling productivity, which causes the amount that must be set aside to reproduce the constant capital to rise, leaving less of the total product to be expended to reproduce labour-power, so that reproduction is curtailed rather than expanded!

      These are the conditions of a squeeze on profits that cause a crisis that Marx refers to in Capital III, Chapter 15, and they are the opposite of the conditions required for the law of the tendency of the rate of profit to fall. As I have set out above, and as Marx explains, it is to remedy these conditions of rising wages, and material prices towards the end period of a boom, which cause this squeeze on profits, that capital seeks out new technological solutions, which create a relative surplus population, reduce the value of fixed capital, and so on, which then create the conditions for the law of falling profits, i.e. rising productivity, and so higher organic composition of capital, to operate.

      The proponents of the law of falling profits as a cause of crises essentially put forward this Ricardian theory of falling profits, rather than Marx’s theory, or at least, given that Marx in his theory of crisis nowhere refers to the law of falling profits as a cause, in their desperation to find some quote in Marx linking the law of profits to crises, they snatch at the comments of Marx, where he is attacking the Ricardian conception of the law, and interpret it as Marx instead supporting Ricardo’s wrong conceptions, and fail to differentiate between where Marx is talking about such a Ricardian squeeze on profits, and where he is describing his law of the tendency for the rate of profit to fall.

  9. Henry Says:

    If you read Theories of Surplus value as the definitive source then you could be led away from a theory for the falling rate of profit, though you would have to ignore volume 3 of capital also! In Theories of Surplus value Marx sees it as a form of crises, in that as prices of raw materials rise the organic composition of capital changes and this triggers a falling rate of profit. In affect the crisis is the result of the normal workings of a capitalist system and the falling rate of profit simply resolves the problem for it then to start anew. So falling and rising rate of profit are two sides of the same coin in this limited reading, that is where cherry picking gets you! But seeing falling and rising rate of profit as two sides of the same coin totally contradicts how Marx presents the law of the falling rate of profit. I would say Boffy falls into this error; he does not have a theory for the falling rate of profit but simply a theory for the movement of profit, which simply rises and falls from one time to another. Boffy ultimately rejects the falling rate of profit theory and willfully ignores the pertinent arguments in volume 3, only cherry picking those parts that conform to the limited argument in Theories of Surplus value.

    What Boffy seems to fail to recognize in reading Theories of Surplus value is that Marx’s goal was to develop an understanding of the recurrent and generalized nature of crises of the ‘world market’ and to critique exactly the notion that crises are not rooted in capitalist production, and he says Ricardo’s followers fail to account for their recurrent nature and therefore explain nothing. Marx then attempts to locate the reason for the recurrent nature of these crises. So Marx was trying to explain these recurrent and generalized crises of the world market, and he was trying to explain it as being rooted in capitalist production. But Boffy takes the form of this crisis as presented in Theories of Surplus value and then tries to apply it to the theory of the falling rate of profit, not realizing they are different, if related, things, at least where the rate of profit is concerned. In other words the reason the rate of profit falls in the recurrent and generalized crises of the world market is different to the longer term theory for the falling rate of profit.

  10. sartesian Says:

    Only Boffy could, or would, take Marx’s explicit, and repeated words, and spend paragraph after paragraph in the attempt to show the words mean exactly the opposite of what Marx said.

  11. sartesian Says:

    Be all of that as it may– pretty much agree that the “other theories” of — not crisis, since Marx was not producing a critique of crisis, but rather of capital, of production of value– the limits, conflicts impairments to capital accumulation, to “capital in perpetuity” fall short– except for overproduction, which I believe is fundamentally different than underconsumption.

    Maksakovsky’s book is brilliant…and wrong. Essentially he comes down to arguing an “underconsumption” variation. And he’s not alone. It always amazes me the looks I get from admirers of Rosa Luxemburg’s Accumulation of Capital when I point out that her critique begins and ends with the issue of consumption, and is essentially an “underconsumptionist” argument.

    We can talk about reproduction and “where the ‘fresh’ money comes from” all we want, but when you get down to it, Rosa is arguing about consumption, about the forces of production outracing consumption.

    And IMO, theories of disproportion are also iterations of the underconsumptionist argument.

    None of the above get us any closer to apprehending the conflict at the core of value production, of wage-labor– the conflict between the labor process and the valorization process– the expulsion and replacement of living labor, the source of value, by objectified labor– i.e. by the already accumulated capital.

  12. Pete Green Says:

    I appreciate the time Michael has taken to respond to my blog and a productive thought-provoking debate which I expect will continue in various forums – at least as long as we avoid succumbing to the vicissitudes of getting old. Here I just want to quickly respond on a couple of points on which Michael has either misunderstood my argument or been a little hasty in his reading of my text – and to correct what I think is a misreading of Maksakovsky (shared it seems by Sartesian above).

    Firstly on two-dimensional crisis theories, I drew a parallel (in my fifth paragraph) between the work of Roberts and Brenner on the one hand and the Monthly Review school on the other. For the former, the two dimensions are a falling rate of profit and excessive debt. For the latter the two are underconsumption and excessive debt. Both currents fail to have an adequate theory of the cyclical fluctuations of the system over the last four decades although Michael has the merit of addressing the issue in his chapter 12 (the fact that it is left to chapter 12 is I suspect revealing).

    Secondly, I do not claim that Marx’s ‘law of profitabilty’ (although I think that formulation in itself is problematic as the word ‘law’ suggests a determinism lacking in Marx’s own texts) is ‘irrelevant to an understanding of crisis’ (this is perhaps where I disagree with Boffy above). At stake here are questions of method and levels of determination which Michael has failed to address except by simply restating what he cosniders to be the ‘primacy’ of production. I will expand on this in a longer piece I will be working on in the new year.

    On Maksakovsky he invokes Grossman’s critique of Luxemburg and once again assimilates ‘disproportionality theory’ to underconsumptionism despite acknowledging Richard Day’s ‘excellent book’ which explores in detail how the two schools of thought vigorously opposed each other in the 1920s in the USSR. But the serious error is to accuse Maksakovsky of making the same mistake as Luxemburg (as correctly identified by Grossman) in assuming that exchange betweent the sectors or departments of reproduction takes place at prices corresponding to labour values. On the contrary, as I said in my blog, Maksakovsky’s innovation was to stress the divergence of market prices from values ( and from prices of production) in the course of the cycle, as prices rise above values in a boom and fall back to new, normally lower, values in a slump.

    Finally on Grossman himself – does he actually refer to Maksakovsky anywhere (my old friend Rick Kuhn should know)? + I wrote a review of Rick’s fascinating biography of Grossman for the Historical Materialism journal Volume16 Issue 2 , 2008, in which I questioned whether Grossman’s crisis theory is actually the same as the falling rate of profit theory in Marx. But I also stressed the significance and relevance of Grossman’s analysis of counter-tendencies restoring profitability, for our analysis of global capitalism since the 1970s. I certainly haven’t changed my position on that issue.

    • michael roberts Says:

      Pete -thanks for the comments

    • Boffy Says:

      Pete,

      You write,

      “Secondly, I do not claim that Marx’s ‘law of profitabilty’ (although I think that formulation in itself is problematic as the word ‘law’ suggests a determinism lacking in Marx’s own texts) is ‘irrelevant to an understanding of crisis’ (this is perhaps where I disagree with Boffy above). At stake here are questions of method and levels of determination which Michael has failed to address except by simply restating what he considers to be the ‘primacy’ of production. I will expand on this in a longer piece I will be working on in the new year.”

      I do not consider Marx law(s) of profitability irrelevant to an understanding of crisis. The question, however, is exactly which law of profitability are we considering, and in what context. For example, are we considering the law relating to the rate of profit, i.e. the profit margin, or are we considering the law relating to the annual rate of profit, and the associated average annual rate of profit, and in what context.

      Are we considering the law of profit whereby, as Marx describes in considering Ricardo’s theory of falling profits, the rate of profit gets squeezed at particular points of the cycle, because at those points, technological developments are not sufficient to raise the level of productivity so that a relative surplus population is created, and relative surplus value does not rise sufficiently to increase the rate of profit.

      At those points of the cycle, Marx’s Law of Profits, illustrates why consumption is high, and as Ricardo describes during such periods, wages may be high, material input prices may be high, and subject to sharp rises in market prices, which as Marx sets out in his response to Ricardo in Chapter 17 of Theories of Surplus Value, and in Chapter 6 of Capital III, means that these higher input costs cannot be recouped in final market prices (because at high levels of consumption, the elasticity of demand is high), so that produced surplus value is then squeezed as producers have to cover these higher costs out of profits so as to continue producing at the same high levels of output required for efficient use of fixed capital.

      At those points of the cycle, where the profit is squeezed by these causes, which have nothing to do with the tendency for the rate of profit to fall, which arises from the opposite condition of rising levels of productivity, and rising levels of surplus value, then the attendant low levels of profit margins can indeed make crises of overproduction more likely.

      But, that is precisely the point isn’t it. If the law of the tendency for the rate of profit to fall is seen as a continuous feature, the question arises, why then do crises occur periodically, rather than also being a constant feature. Explaining the periodicity of crises, by simply transferring the problem to being the law of falling profits, simply begs the question, how then explain the periodicity of the tendency of profits to fall, especially when it is presented as a law that is constant in operation!

      Gravity is constantly in operation, but the reason that this or that plane falls out of the sky every so often can only be explained by what is different on each occasion, not by what is a constant. In other words, planes do not usually fall out of the sky, despite the ever present law of gravity. They fall out of the sky periodically, because engines fail, wings get broken, bombs are placed on them, and so on.

      Marx provides us with the information about what causes the periodicity of profits, and it is as set out above. Marx’s cycle begins with the period of stagnation, moves to the period of prosperity, from there to boom, and finally to crisis. During the stagnation period, capital’s introduce new technologies that they have been induced to develop because of the shortage of labour, and high levels of wages that squeezed profits, by squeezing the rate of surplus value.

      It is, in fact, because these new technologies replace labour, reduce wages etc. that growth is relatively stagnant, because the conditions for expanding demand rapidly are undermined. Existing old industries, can expand their production without much in the way of additional labour. The basis for a more rapid expansion only arises, when the shaken out labour and capital, from these old industries becomes employed in new industries, producing a whole range of commodities based upon the new technologies, for which there then arises whole new markets, and for which the elasticity of demand is low, so that initially high prices and profits, provide the basis for a rapid expansion by relatively small reduction in prices, as production increases.

      As Marx puts it in Chapter 14,

      “On the other hand, new lines of production are opened up, especially for the production of luxuries, and it is these that take as their basis this relative over-population, often set free in other lines of production through the increase of their constant capital. These new lines start out predominantly with living labour, and by degrees pass through the same evolution as the other lines of production. In either case the variable capital makes up a considerable portion of the total capital and wages are below the average, so that both the rate and mass of surplus-value in these lines of production are unusually high.”

      That was seen in the 1930’s, by the development of the car industry, and of the consumer electronics and petrochemicals industries, which led to whole new areas in Britain, in the Midlands and South-East, producing such commodities, with workers being paid relatively high wages. It was these industries which provided the basis for the post-war boom.

      But, just as it takes many years, before such technologies become commonplace, just as it takes many years before new supplies of minerals, and raw materials can be developed, so many years can then pass until the productivity gains brought about by these new technologies begin to fade, and until the new ranges of commodities introduced become commonplace, and their elasticity of demand also rises.

      At that point, any expansion of production can only (relatively) be achieved by also expanding the quantity of labour employed, rather than introducing new machines that replace labour. In other words, capital accumulation moves from being intensive to extensive. As that process continues, the supplies of labour-power start to get used up, wages start to rise, the rate of surplus value starts to get squeezed again, the problem of realising produced surplus value begins to impose itself once more, and crises become more frequent.

      Once again, we are then at the crisis phase of the cycle, and capital begins to search out new technologies to resolve this condition. That is why Marx refers to the lifespan of fixed capital as playing a significant role in determining the periodicity of the cycle.

      “One may assume that in the essential branches of modern industry this life-cycle now averages ten years. However we are not concerned here with the exact figure. This much is evident: the cycle of interconnected turnovers embracing a number of years, in which capital is held fast by its fixed constituent part, furnishes a material basis for the periodic crises. During this cycle business undergoes successive periods of depression, medium activity, precipitancy, crisis. True, periods in which capital is invested differ greatly and far from coincide in time. But a crisis always forms the starting-point of large new investments. Therefore, from the point of view of society as a whole, more or less, a new material basis for the next turnover cycle.” (Capital II, Chapter 9, p 188-9)

      The explanation for the periodicity of the rate of profit, and for crises is to be found in the material conditions that determine the long wave cycle, i.e. the time required to develop new technologies, the time required to explore for and bring on stream new sources of raw materials, the time required for new commodities, and so markets to be developed, the time required to use up available labour supplies, the time that fixed capital lasts and so on.

  13. sartesian Says:

    Maksakovsky is explicit in linking his analysis, and his explanation of Marx’s “theory of crisis” to underconsumption in the 4th chapter of his book:

    “These conditions already establish the permanent possibility that the development of social production will surpass effective demand which is restricted by the antagonistic conditions of capitalist distribution.” and:

    “On the one hand, these relations continuously drive the development of the productive forces forward because they assume the form of the ‘self-expansion of capital value’; on the other hand they simultaneously erect barriers to this process the relative curtailment of social consuming power…. [the] rapid growth of the productive forces within the limits of their capitalist organization, must inevitably come into conflict with the narrow base of consumption, which cannot be detached from its ‘result’– the value of labour power…”

    And he explicitly links disproportion to restricted or under consumption:

    “A capitalist crisis is the ‘offspring’ of capitalist anarchy, which as a result of the activity of the law of value (price of production), is manifested in two planes: 1)the maturing of ‘disproportion’ between social production and consumer demand; and 2) the emergence of a more particular disproportion between Departments I and II. Both disproportions come to a head simultaneously.”

    Indeed, Maksakovsky focuses on the deviation of market prices from value, but a) he identifies value as prices of production b)market prices are the result of “demand.” What makes Maksakovsky’s work so brilliant is that he identifies that demand, that market driver, that self-expansion of value, as embedded in and driving forward, the changing composition of capital, technical and value, or simply “organic” as Marx identified it– and more precisely the growing portion of fixed capital in the production process.

    Of course the real issue, IMO, is what causes both disproportions to come to a head simultaneously? That’s where “conjuncture” originates, and where crisis becomes the expression of a secular trend. Since value, expressed in and by industrial capital, as profit is the mediator of all things capitalist, then origin must be in the condition of value production, in the changes in the composition of value production.

    He states, and in italics, “the fundamental cause of the capitalist crisis is capitalist anarchy. Its real expression includes the inevitability of periodic detachments of production from consumption, whose particular expression is fully developed overproduction in the form of disproportion between Departments I and II.

    So the disproportion between production and consumption determines the disproportion between Depts I and II, and Maksakovsky refers to disproportion as overproduction when in essence he argues overproduction is underconsumption, no longer mediated by profit.

    Profit is the key, and that’s why I think Maksakovsky’s because is so good, actually great, even where and when mistaken.

    The overproduction of capital is the overproduction of the means of production as capital. And that shreds the “mediating-ability” of profit.

    • michael roberts Says:

      nicely put

      • sartesian Says:

        Why thank you.

      • Pete Green Says:

        Sartesian’s comment is certainly nicely put. However, the practice of selective quotation does not prove the point he is trying to make. I won’t respond in kind or at length and I would rather readers went to the original text. But Maksakovsky in chapter 2 p67 explicitly rejects any ‘underconsumptionist’ position with the simple argument that the ‘limited consumption of the masses’ is a permanent condition and cannot therefore explain the cyclical fluctuations of the system. Nor does he think market prices are simply a function of demand but like Marx in Volume 3 locates their movement as a function of the relative balance of supply and demand. Of course both S and D have to be explained as a function of underlying relations of production AND distribution.
        Both Michael and Sartesian seem to think that any reference to a cyclical disproportion between production and consumption makes you an underconsumptionist. That line of thought can only lead you into a muddle (and somewhere there are comments from Lenin to that effect which I’ll try to dig up for another blog not because appeals to such ‘authority’ should settle any argument but because Lenin as I recall was a very effective critic of the Narodniks who really were underconsumptionists).

    • sartesian Says:

      Come on Peter, that’s not a selective quotation. It comes from what really forms the concluding chapter of his analysis, and he presents it as a summation.

      In Chap 2, page 67, Maksakovsky says:
      “However decline of the working-class share in the aggregate product does not entail a necessary (ital. in original) rupture between production and consumption. If that were the case, capitalism would be in a condition of permanent (ital. in original) crisis, for in all stages of the cycle the organic composition grows at one tempo or another…. The whole issue has to do with the concrete (ital.) conditions that prevail during the period of expansion when 1)narrowing of the consumption base is accompanied by the massive character of expanded production 2) this expansion is ‘oriented’ not upon price of production and value, which would ensure receipt of ‘proper’ average profit, but rather upon the elevated market price, which…is associated with a unique phenomenon– that is the impossibility of production growing at the same rate as demand when the latter is amplified by a massive renovation of capital.

      What makes Maksakovsky’s analysis “unique” or IMO “better” than the “typical” underconsumption or disproportion arguments is that he recognizes that the changing components of capitalist production, the expansion of fixed capital and the expulsion of labor power undermines profitability, and determines the “rupture” between production and consumption.

      Moreover, in the pages 65-66 Maksakovsky deals with what he considers to be those precise concrete conditions when expansion reaches that crisis point:

      “In this way, there takes place a feverish growth of production during the stage of expansion, and social production races ahead– until it encounters a shortage of effective demand.”

      “How does this shortage of effective demand arise?…..But the whole ‘secret’ lies in the fact that, first (ital), the increased capitalisation during the expansion can easily become detached from the base of effective demand, for the volume of profits, realised by capitalists during the expansion has no direct dependence on the growth of working-class incomes….. Second (ital) the massive upsurge of social production rests not only upon capitalisation of newly realized surplus-value, but upon the consolidation of all the financial resources of society…. The result is to further amplify still further the threat of rupture. Third (ital) the remarkable rise of wages beings in the second half of the expansion..”

      “The fourth (ital) important moment determining a lag in the base of consumer demand is inadequate growth of consumption on the part of the capitalist class itself….”

      “The fifth (ital) important condition for a ‘rupture’ is a rise in the organic composition of capital…..Productivity growth in turn brings about a fall in the value of labour-power and a relative increase in the commodities available for mass consumption. A relative narrowing of the consumption base takes place…. As a result, in the concrete conditions of a rise in the organic composition of capital during the expansion, we find one of the ‘conditions’ for the rupture of the ‘equilibrium’ between production and consumption.”

      Now what I think is noteworthy is the recognition that capital is always disrupting the non-equilibrium between production and consumption. There is no “equilibrium.”

      Nevertheless, Maksakovsky always comes back to the issues of “effective demand” and the base of consumption to explain this rupture, explaining what needs to be explained by presuming its explanation.

      At the same time, Maksakovsky has already made it clear that the rupture is intrinsic, ongoing, immanent to capital. He is, in effect, positing a condition where disproportion and underconsumption “converge” in the cycle of capital to form a crisis. And the basis of that convergence, that conjuncture is……the growth of fixed capital. “Fixed capital is the axis around which the production process revolves.”

      I think that what makes Maksakovsky’s analysis so superior to others is that his analysis of the cycle constitutes a “parallel” or in fact, an expression, of the underlying tendency of the rate of profit to decline as capital accumulates.

      But of course, I’m prejudiced, and perhaps I’m reading, and reading into Maksakovsky, the issues as I want them to be, rather than as he wrote them.

      Happens, right?

  14. Henry Says:

    What Boffy is failing to understand, other than the difference between a natural phenomenon like gravity and an historical phenomenon like value, is the difference between form of crisis and the structure which defines the crisis.

    In theories of surplus value Marx mentions the falling rate of profit as the form of crises and the crisis is the crisis of the world market, a recurrent and generalized crisis that did not exist when Ricardo was writing. Which is why he didn’t identify it. The fact that it didn’t exist but came into existence as capitalism developed is the key to understanding the significance of the theory for the falling rate of profit in shaping crises. It is also the key to understanding why comparisons with gravity should be limited in the extreme.

    The reason the theory for the falling rate of profit is so fundamental to crises is that it defines the structure, periodicity and nature of crises.

    Engels and probably Marx believed the recurrent crisis of the world market outlined by Marx in Theories of surplus value would evolve and morph into more acute and more recurrent crises and underlying this belief is the falling rate of profit theory. In this respect we might call Engels the first catastrophist of the left.

    So whatever anyone says this is a debate about the validity of the theory of rate of profit to fall. Boffy clearly believes this theory belongs in the dustbin. That doesn’t make him a non Marxist imo but it would help the debate if he just understood this is the cl;ear implication of his argument.

    The idea that Marx developed this theory simply to understand and explain capital allocation is risible, as anyone who read Marx and Engels polemics against Proudhon’s followers can testify.

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